| Sumario: | The article analyzes the effectiveness of intervention policies in the national and international food grain markets in achieving prespecified stabilization goals. The model is of an open economy engaged in trade with the rest of the world. The sources of fluctuations in the domestic market are assumed to be random disturbances in domestic supply and in the international price. The country is assumed to be self-sufficient in the sense that in a normal year, when both the country's production and the world price are at their mean level, there would be no price differential between the country and the world and thus no incentive for trade. Consumers in the country are divided into three groups: low-income urban consumers, medium- and high-income urban consumers, and rural consumers. A separate demand function is specified for each group. The model can accommodate the specification of a food price subsidy program for low-income urban consumers and a floor price policy for farmers. Stabilization by means of buffer stocks can also be incorporated; it is specified as holding supply within predetermined boundaries and within the limits of storage capacity constraints. For many governments, the primary objective of intervening in grain markets is to ensure a regular flow of supplies to consumers and to meet the needs of vulnerable sections of the population. The effects of interventions on the long-run welfare of the economy and the distribution of national income, which we discuss in the next section, are only secondary considerations for most governments.
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